Forex Investment and Currency Trading

USD
Despite the rise in the Chicago PMI, market expects the ISM index to decline to 48.5 in June from 49.6 in May.  Another soft reading casts further doubt on the ability of the Fed to hike rates against the backdrop of a weak economy.  Fed Fund futures continue to price more than 25bps of tightening by year-end.  A reappraisal of this view will keep USD on the defensive.  

EUR/USD

The euro made gains today, rising to 1.5818. Thursday’s expected rate increase out of the ECB is expected to keep EUR near the top of the range against the dollar. Stronger-than-expected German retail sales, PMI, and employment data released also confirm the likelihood of a rate hike.  Strong EUR performance is expected leading up to the ECB’s rate announcement.  

Short term technical studies show support levels at 1.5710 and a resistance level at 1.5840. EUR is currently trading near the high of the day’s range (1.5723 – 1.5818).

GBP/USD

The pound rose above $2 overnight for the first time since April 21 despite the recent conundrum facing BoE.  Soft manufacturing PMI data posted its sharpest contraction in over a decade while input and output prices continued to rise. GBP has remained resilient to the news despite higher short-sterling interest rate futures. Market believes that this bout of bad news was expected and has already been priced into GBP. Barring any significant down-shift in employment or private consumption, GBP will likely continue to consolidate on a TWI basis.

Short term technical studies show support levels at 1.9790 and a resistance level at 2.0045. GBP is currently trading near the high of the day’s range (1.9888 – 2.0008).

USD/JPY

The yen is stronger amidst a reduction in risk appetite and the consequent partial unwinding of the carry trade.  June BoJ Tankan was stronger than consensus and suggests the Japanese economy may be fairing better than the US, further bolstering JPY.  However, the rates environment should be the main driver of the yen over the medium-term.

Short term technical studies show support levels at 104.90 and a resistance level at 107.70. USD/JPY is currently trading near the low of the day’s range (105.33 – 106.38).

AUD/USD

The Australian dollar declined today, following an announcement from the RBA saying that they will keep rates steady at 7.25%. The decision comes as signs of a weakening economy become apparent, evidenced in a 6% decline in building approvals and a 0.3% decrease in retail sales from last month. Despite the central bank’s more dovish tone, market expects that the RBA will remain firmly on hold for the rest of the year, as a result of elevated inflationary pressures.

Short term technical studies show support levels at .9490 and a resistance level at .9655. AUD is currently trading near the low of the day’s range (.9536 - .9595).

NZD/USD

NZD/USD was higher yesterday, mostly due to broad USD weakness.  However, NZD is weaker this morning, ending its recent climb as investors increased bets that the Reserve Bank of New Zealand will lower rates in the near-term in response to stunted economic growth.  These new bets were spurred by Australia’s rate decision and accompanying statement, characterized by the RBA’s neutral, yet slightly dovish tone.  

Short term technical studies show support levels at .7535 and a resistance level at .7650. NZD is currently trading near the middle of the day’s range (.7589 - .7628).

USD/CAD

The Canadian dollar posted weak gains this morning after economic data showed Canadian GDP expanded by 0.4%, marking the first time in three months that Canada has experienced positive economic growth. However, CAD has since retreated slightly and is trading close to where it opened the day. GDP growth was spurred by increases in both the manufacturing and wholesale industry which rebounded from previous losses. The BoC will likely keep rates unchanged through 2H ’08 as economic pressures have been offset by global inflationary concerns.

Commodities Update
Oil is higher again today on news that Israel may attack Iran and its nuclear facilities sometime this year, thus affecting supplies coming out of the country.  Gold also rose as investors clamored for safer investments in light of the news coming out of the Middle East, as well as hedges against general USD weakness.    Crude oil is currently trading at $142.06, and gold is currently trading at $928.8.